Is Individual Room Tax a New Stealth Tax?

Ornate chimneys on building

There has been much in the press recently outlining a ‘New Stealth Tax for Landlords’ in the form of a room tax. Newspapers are all too fond of claiming that new taxes are being introduced. One of the latest implies that landlords will in future have to treat rooms in a house as individual residencies.

As individual residences, council tax would have to be paid for each room. As always, the ‘Devil is in the Detail’.  The tax has, in fact, been payable in certain circumstances since at least 1992, as stated in the regulations below.

Regulation 2 Council Tax (Liability for Owners) Regulations 1992 says:

  1. If you let your HMO by the room (bedsits) then the LANDLORD is responsible; OR
  2. If you use Licence Agreements (which are used rarely and only for certain circumstances) then the LANDLORD is responsible.
  3. If your HMO is let out on a Joint and Several contract to a group of tenants who share the whole house together, then the TENANT is responsible.
  4. If you let your HMO out by the room, and each room has its own Council Tax banding, then each room is a dwelling and the TENANT will be responsible.

The only way to ensure that a landlord does not become liable for unexpected tax is to ensure that the position is made clear in any agreements. It seems clear that, if no arrangement is documented, then indeed the landlord is certainly responsible for paying a separate council tax for each room in a ‘House of Multiple Occupancy’ out of the income received for rent. 

This is a position that many will find themselves in and it may impact on the viability of HMOs for many landlords.

If in any doubt of your own situation, please consult your local and independent property surveyor, who will be able to advise on the matter.